Commissioner of Income-Tax, Delhi And
Rajasthan Vs. M/S. Bharat Carbon and Ribbon Manufacturing Co.  INSC 303
(17 December 1965)
17/12/1965 SIKRI, S.M.
CITATION: 1966 AIR 1561 1966 SCR (3) 170
Indian Independence Act (10 & 11 Geo Vic.
30), 18(3) and Income Tax Act (11 of 1922), s. 18A(1)-Advance tax-Adjusted by
Pakistan Government-If could also be adjusted by Indian Government.
Between June 1946 and March 1947 the
assessee-company, which then had its head office at Lahore, paid advance tax to
the Income-tax Officer, Lahore, under s. 18-A of the Indian Income-tax Act,
1922. For the assessment year 1947-48, the assessment was completed by the
Pakistan Income-tax Officer on 28th January 1948 after adjusting the advance
income-tax paid. The Income-tax Officer, New Delhi, assessed the tax for the
same year 1947-48 in 1952. The assessee contended that credit should be given
to him of the advance tax paid by him in Lahore under s. 18-A(11). The claim was
disallowed by the Appellate Assistant Commissioner but the Appellate Tribunal
and the High Court on a reference,held in favour of the assessee.
In appeal to this Court,
HELD : The effect of s. 18(3) of the Indian
Independence Act was to change the incidents of the advance tax paid.
Previously it was to be adjusted towards a
single regular assessment to be made by British India. After the Independence
Act, the advance tax was liable to be adjusted against two regular assessments,
one by India and one by Pakistan. In Pakistan, under s. 18A(11), the Pakistan
Government was entitled to adjust the advance tax paid by the assessee against
its demand. Similary, the Government of India was entitled to adjust the amount
against its demand. It,follows that if the assessee had been given credit for'
the advance tax, by the Pakistan Government, he cannot claim that credit should
be given to him by the Indian income-tax authorities. [174 B-D] Dwarka Das v.
Income-tax Officer, Kanpur, 29 I.T.R. 60
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 106 of 1965.
Appeal by special leave from the judgment and
order, dated November 13, 1962 of the Punjab High Court (Circuit Bench) at
Delhi in Income-tax Reference Case No. 3 of 1959.
A. V. Viswanatha Sastri, Gopal Singh and R.
N. Sachthey, for the appellant.
B. L. Khanna and K. K. fain, for the
The Judgment of the Court was delivered by
Sikri, J. This appeal by special leave is directed against the judgment of the
High Court of Punjab at Chandigarh in a reference made to it under s. 66(1) of
the Income Tax Act, 1922, 171 hereinafter referred to as the Act. The questions
which were referred were :
(1) Whether the assesses was entitled to have
an adjustment of the advance tax paid by it under Section 18-A of the Indian
Income-tax Act in Lahore for the assessment year 1947-48 against the demand of
tax raised by the Income-tax Officer 3rd Additional Business Circle, New Delhi
for the assessment year 1947-48 ? (2) Whether the order of the Tribunal directing
a refund to the assessee out of the advance tax paid by him in Lahore is legal
and valid ? As the High Court rightly observed, the answer to the second
question depends on the answer to the first question, and it is the first
question alone which requires consideration.
The relevant facts are stated in paras 2 and
3 of the Statement of the Case, as follows :
"2. The statement of case relates to the
assessment year 1947-48, the accounting period being the calendar year ending
31st December, 1946.
3. The assessee is a public limited company
dealing in the manufacture and sale of stationery goods. Before the partition
of the Country the company's registered office as well as the head office was
at Lahore. The assessment for the year 1947-48 was completed by the Pakistan
Income-tax Officer on the 28th January, 1948 completely ignoring the agreement
of the Avoidance of Double Taxation of Income between the Pakistan and the
Indian Governments. The assessment for the year 1947-48 was also made by the
Income-tax Officer 3rd Additional Business Circle, New Delhi on a figure of Rs.
38,916. It is common ground that the assessee had paid advance tax under
Section 18-A of the Indian Income Tax Act to the tune of Rs. 36,783/6/- between
June. 1946 and March, 1947. This tax was paid under the Indian Income-tax Act
to the Income- tax Officer, Lahore." The Income-tax Officer 111,
Additional Business Circle, New Delhi, by his order, dated March. 1952,
determined the total income of the respondent, M/s. Bharat Carbon & Ribon
Manufacturing Co., hereinafter to as the assessee at Rs. 38,916 and directed
that demand notice and chalan be issued.
Before the Appellate Assistant Commissioner
one of the points taken up by the assessee was that credit should be given to
him of the-advance tax paid by him in Lahore, under s. 18A(11) which reads as
follows "Any sum other than a penalty or interest paid by or recovered
from an assessee in pursuance of the provisions of this section shall be
treated as a payment of tax in respect of the income of the period which would
be the previous year for an assessment for the financial year next following
the year in which it was payable, and credit therefore shall be given to the
assessee in the regular assessment." The Appellate Assistant Commissioner
disallowed the claim. He observed :
"I, however, find that the amount under
Section 18-A was paid by the assessee to Income-tax Officer, Lahore. The same
Income- tax Officer made an assessment for this very year on 28th January, 1948
on a total income of Rs. 1,22,014 for Income tax and Rs. 52,780 for capital
gains. He worked out the total tax payable by the assessee at Rs. 76,472/6.
As a result of this assessment, even after
setting off the tax paid under Section 18-A of Rs. 47,513 an amount of Rs.
20,000 was still due from this assessee. The amount under Section 18-A, has,
therefore, been adjusted by the Pakistan authorities towards the. payment of
tax and the assessee cannot take credit for this amount again. Under these
circumstances, it must be held that there was no balance of tax paid under
Section 18-A left to be adjusted by the Income-tax Officer for the Indian
assessment." The assessee filed an appeal before the Appellate Tribunal.
The Tribunal allowed the claim on the ground that the language of s. 18A (11)
was mandatory, and it was the duty of the Income. tax authorities to give
credit for the amount paid by the assesses as advance tax in the regular
assessment made under the Indian Income Tax Act. It observed :
"What the Income tax authorities would
do or may have done to the advance tax paid to the Income-tax Officer, Lahore,
is entirely immaterial." 173 At the instance of the Commissioner of Income
Tax a refer- ence was made to the High Court. The High Court held that if the direction
contained in s. 18A(11) had to be obeyed, credit had necessarily to be given to
the assessee at the time of regular assessment. In reply to the argument of the
learned counsel for the Commissioner of Income Tax that no adjustment was
possible because the Pakistan authorities had already raised a demand against
the assessee on January 28, 1948, and in part satisfaction of that demand wiped
out the amount standing to the credit of the assessee, the High Court observed
"It is, however, obvious that what may have been done by the Pakistan
authorities in January, 1948, cannot be called a proceeding under the Indian
Income Tax Act and the fact that the money paid by the assessee under the
Indian Income Tax Act may have been seized by the Pakistan authorities or
disposed of in some other manner, can in no way affect the right of the
assessee under the Indian Income- tax Act." In the result, the High Court
answered both the questions in the affirmative.
Mr. A. V. Viswanatha Sastri, the learned
counsel for the appellant, contends before us that by virtue of s. 18(3) of the
Indian Independence Act, the Income Tax Act as it existed before the coming
into force of the Indian Independence Act, applied both to the Dominion of
Pakistan and the Dominion of India, and the result of this simultaneous
application to both the Dominions was that the advance tax paid by the assessee
was liable to be adjusted against the assessments made both in Pakistan and in
India, and Pakistan having made the adjustment, there was no money left to be
adjusted against the assessment in India.
The learned counsel for the respondent relies
on the reasoning of the High Court and on Dwarka Dass v. Income-tax Officer,
Kanpur(1) and says that it was the obligation of the Government of India under
s. 9 of the Indian Independence (Rights, Property and Liabilities) Order, 1947,
either to refund the money paid as advance tax or to give credit in the
assessment in India.
Section 18(3) of the Indian Independence Act
reads as follows :
"Save as otherwise expressly provided in
this Act, the law of British India and of the several parts thereof (1) 29
174 existing immediately before the appointed
day shall, so far as applicable and with the necessary adaptations, continue as
the law of each of the new Dominions and the several parts thereof until other
provision is made by laws of the Legislature of the Dominion in question or by
any other Legislature or other authority having power in that behalf." in
our opinion the effect of s. 18 (3) of the Indian Independence Act was to
change the incidents of the advance tax paid. Previously the advance tax was to
be adjusted towards a single regular assessment to be made by British India.
After the Indian Independence Act the advance tax was liable to be adjusted
against two regular assessments, one by India and one by Pakistan. In Pakistan,
under s. 18A(11), the Pakistan Government was entitled to adjust the advance
tax paid by the assessee against its demand.
Similarly, the Government of India was
entitled to adjust the amount against its demand. It follows that if the
assessee has been given credit for the advance tax by the Pakistan Government,
he cannot claim that credit should be given to him by the Indian Income Tax
authorities. The effect of the Indian Independence Act was not to double the
advance money the assessee had paid. The amount of money he paid as advance tax
remained the same. Having been given credit by the Pakistan Government he could
not claim that there was any amount left on which s. 18 (A)11 could operate.
Dwarka Dass's case(1) relied on by the learned counsel for the assessee is
distinguishable because that case proceeded on the assumption that no regular
assessments had been made in Pakistan for the relevant years and only some assessment
proceedings were pending. It was also common ground that excess payments had
been made by the petitioner in that case under s. 18A of the Indian Income Tax
Act in Lahore in respect of the years 1946-47 and 1947- 48, and it was only
these excess payments that the Allahabad High Court had directed should be set
off against the assessments of the subsequent years. But the facts in the
present case are different. Here the Pakistan authorities had made a regular
assessment and had adjusted the advance tax paid by the assessee.
In this view it is not necessary to consider
the interpretation of s. 9 of the Indian Independence (Rights, Property and
Liabilities) Order, 1947. By virtue of the simultaneous application of the
Indian Income Tax Act in both the Dominions, there was (1) 29 I.T.R. 60.
175 a statutory modification of the incidents
of the advance tax paid by the assessee.
In the result we hold that the answer to the
questions should be in the negative and against the assessee. The judgment of
the High Court is accordingly set aside and the appeal accepted with costs here
and in the High Court.